IE 4906 Special Topics in IE: Retailing Management

Week 1 Introduction and Types of Retailers

Dr. zgen Karaer

Outline

Introduction

What is Retailing? The Retailer and the Supply Chain Social and Economic Significance of Retailing Structures of Retail and Distribution Systems Across the World A Few Concepts in Retail Food Retailers General Merchandise Retailers Service Retailers

Types of Retailers

Types of Ownership

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Dr. zgen Karaer

What is Retailing?

Retailing is the set of business activities that adds value to the products and services sold to consumers for their personal or family use.

Overnight stay in a motel A doctors exam (a hospital) A haircut (a hairdresser) A DVD rental A home-delivered pizza A banking office Catalog/Internet sales Vending machines, DVD rental kiosks

Not all retailing is done in stores..

Retailers are the customers for most business-to-consumer (B to C) companies (e.g. P&G, Sony, and etc.)
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The Retailer and the Supply Chain

Manufacturer

Wholesaler

Retailer
Retailers sell products and/or services to consumers for their personal or family use

End-consumer

Manufacturers Wholesalers engage in typically design and buying, taking title to, make products and sell often storing and them to retailers or physically handling goods wholesalers in large quantities and then reselling the goods to retailers or other businesses
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The Retailer and the Supply Chain

Vertical Integration: A firm performs more than one set of activities in the channel (e.g., a retailer engages in wholesaling activities by operating its own DCs to supply Backward its stores). Integration: Wal-Mart, Backward Integration: Arises when a Safeway, retailer performs some wholesaling and Migros manufacturing activities such as operating warehouses or designing private-label merchandise. Vertical Forward Integration: Occurs when a Integration: manufacturer undertakes retailing and J. Crew, wholesaling activities. Victorias

e.g. Ralph Lauren, Apple

Secret, Gap

Examples??
Week 1 Dr. zgen Karaer

Do We Actually Need Retailers?

Retailer create value by

1.

2.

3. 4.

Providing an assortment of products and services: Supermarkets typically carry 20,000 to 30,000 different SKUs made by more than 500 companies Breaking bulk: Wholesalers/manufacturers ship the goods to retailers in high volumes # of cases, pallets, etc. (economies of scale, reduced transportation cost) and retailers sell the items in smaller quantities. Holding inventory (and replenishment): Products will be available (on shelf) when the products want them. Providing services: Retailers provide services that make it easier for customers to buy and use products.
high-end apparel retailers and personal consultancy & complementary tailoring, home improvement retail and shipping, truck rental, & installment services.

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Dr. zgen Karaer

Challenge for the Retailer Today

Retailers challenge:
Create value

Changing marketplace and intense competition

Demand Management Assortment/service planning; marketing and promotions planning; price management

Inventory Management Supply chain management; cost control Evolving technology; changing consumer behavior (e.g. Internet, smart phones, social media, and etc.)
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Social Significance of Retailing

Corporate Social Responsibility (CSR):

Involves an organization voluntarily taking responsibility for the impact of its activities on its employees, its customers, the community, and the environment. CSR activities are associated with retailers internal operations and the design and the manufacturing of the products they sell.

Stage 1: Engage only in CSR activities required by law Stage 2: Go beyond activities required by law to engage in CSR activities that provide a short-term financial benefit (to the company) Stage 3: Behave responsibly because it is the right thing to do. Stage 4: Engage in socially and environmentally responsible actions because they believe these activities must be done for the wellbeing of everyone.
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Corporate Social Responsibility an Example

Bangladesh factory collapse, April 2013

The eight-story Rana Plaza factory building near Dhaka collapsed on 24 April with an unknown number inside1. The building had housed a number of garment factories. 1,000+ bodies recovered; 2500+ injured; mostly female garment workers. A number of people have been arrested and charged with causing deaths by negligence. Just a day before the collapse, the building was briefly evacuated when cracks appeared in the walls. However, workers were later allowed back in or told to return by the factory owners.

1 Bangladesh factory collapse toll passes 1,000, May 10 2013. http://www.bbc.co.uk/news/world-asia22476774

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Corporate Social Responsibility an Example

Bangladesh

one of the largest garment industries in the world

announced the shut-down of 18 garment factories for safety reasons, amid growing concerns over the issue of industrial safety The workers killed or injured in the collapsed building were making clothes for sale in Britain, Denmark, France, Germany, Spain, Ireland, Canada and the United States. Their customers included Loblaw, Primark, Joe Fresh, Benetton, Matalan, Mango, Bonmarche, and the Childrens Place2. Wal-Mart Stores Inc., Gap Inc. and other major U.S. retailers plan to [] start implementing a Bangladesh factory-safety plan announced last month amid criticism it lacks teeth to enforce company promises.3 The group is the U.S. industry's response to pressure to improve working conditions in facilities in Bangladesh and prevent disasters like the deadly garment factory collapse in April.3

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2 2013, Dhaka building collapse: Factories and buyers, May 10. http://www.bbc.co.uk/news/world-asia-22474601 3 Banjo, S. and S. Kapner, 2013, U.S. Retailers to Implement Bangladesh Factory Plan, Wall-Street Journal.

Economic Significance of Retailing Wholesale and Retail Trade in Turkey

Wholesale and Retail Trade Performance in Turkey (source: TUIK)
16.0 180 000 000 000 160 000 000 000 140 000 000 000 120 000 000 000 10.0 100 000 000 000 14.0

12.0

% Share of GDP

8.0
80 000 000 000 6.0 60 000 000 000 4.0 40 000 000 000 20 000 000 000

sector share

value (TL)

2.0

0.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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Economic Significance of Retailing Wholesale and Retail Trade in the U.S.

According to 2010 statistics published by the U.S. Bureau of Economic Analysis4,

retail and wholesale trade value added comprises of 6.09% and 5.49% of GDP whereas full-time equivalent employees amounts to 10.39% and 4.39% of the workforce in all industries (except government), respectively. When added together, retail and wholesale catches up with the highest value-adding non-governmental sector (manufacturing - 11.72%) and surpasses the highest employment non-governmental sector (education and health-care 14.69%)

4 2013, Staff. U.S. Bureau of Economic Analysis 1998-2011 NAICS Data. http://www.bea.gov/industry/gdpbyind_data.htm
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Structures of Retailing and Distribution Channels around the World

Many retailers pursue growth by expanding operations to other countries

Name of Company 1 2 3 4 Walmart Carrefour S.A. Tesco plc Metro AG Country of Origin U.S. France U.K. Germany Countries of Operation 15 34 13 32 2007 Retail ($ billions) 374.526 112.604 94.740 87.586

The whole wholesale and retail trade sector in Turkey in 2007 generated revenue of around 103B TLs (~$79B) which represented about 12.2% of the GDP.

in 2012, it was 169B TLs, which would be about $93.8B.

Walmarts 2012 revenue was $443B.

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Structures of Retailing and Distribution Channels around the World

U.S.: Many U.S. retailers operate stores with over 20,000 sq-ft and operate their own warehouses, eliminating the need for wholesalers. India and China:

Small stores operated by small firms A large independent wholesale industry (several levels of distributors) Transportation and communication systems not as efficient laborintensive industry
Northern Europe: high concentration levels in some national markets Southern Europe: more fragmented

Europe:

Europe and India reduce unemployment by protecting small businesses (SMEs) such as neighborhood retailers

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A Few Concepts in Retail

Intratype competition: competition between the same type of retailers Intertype competition: competition between retailers that sell similar merchandise using different types of stores. When retailers offer merchandise not typically associated with their type of store, the result is scrambled merchandising. In fact, all retailers compete against one another for the dollars that consumers spend on goods and services.

Safeways CEO recognizes that grocery stores are competing with drugstores (different in Turkey), convenience stores, and restaurants for consumers food dollars. A retailer is easily substitutable with another one..
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Retailing is an intensely competitive industry. Why?

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A Few Concepts in Retail

Retail strategy indicates how the retailer plans to focus its resources to accomplish its objectives.

The target market, or markets, toward which the retailer will direct its efforts, The nature of the merchandise and services the retailer will offer, How the retailer will build a long-term advantage over its competitors. Its market, Financial status, Location, Organizational and human resource structure, Information systems, Supply chain organization, and Customer relationships
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Key decision areas for a retailer

Having the right product at the right place, at the right time..
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Types of Retailers Retailer Characteristics

Retailers survive and prosper because they satisfy a group of consumers needs more effectively than their competitors, and thus consumers prefer different retail types depending on their needs. To describe the different types of retailers retail mix (or the elements retailers use to satisfy their customers needs.
1. 2.

3.
4.

Type of merchandise and/or services offered, The variety and assortment of merchandise offered, The level of customer service, and The price of the merchandise.

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Type of Merchandise

Motor vehicle and parts dealers Furniture and home furnishings stores Electronics and appliance stores Building material and garden equipment and supplies dealers Food and beverage stores Health and personal care stores Gasoline stations Clothing and clothing accessories stores Sporting goods, hobby, book, and music stores General merchandise stores Miscellaneous store retailers Nonstore retailers + Service retail in arts, entertainment, and recreation Service retail in accommodation and food services
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Variety and Assortment

Variety is the number of merchandise categories a retailer offers. breadth of merchandise Assortment is the number of different items offered in a merchandise category. depth of merchandise Each different item of merchandise is called a stock-keeping-unit (SKU) What is a category?

An assortment of items (SKUs) the customer sees as reasonable substitutes for one another

Womens long-sleeve knits Womens woven tops

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Services Offered

Customers expect almost all retailers to provide certain services:

Displaying merchandise Accepting credit cards Providing parking Being open at convenient hours Home delivery Gift wrapping Ikea vs. Koctas/Bauhaus: Is there an installation service? Is it complementary? What about home delivery? Nordstrom vs. Macys: Is there a personal stylist available to help a customer in need? Is it complementary? What about alterations?
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Some retailers charge customers for other services

Retailers may differ on other services

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Prices and the Cost of Offering Breadth and Depth of Merchandise and Services

Offering merchandise is costly.. What is the consequence of offering a deep and broad assortment?

What happens when a retailer offers many brands (product alternatives) for a customers need? How many sizes, types, and brands of detergent should a retailer offer? How many brands, styles, and colors of womens jacket should a retailer offer?

Offering services is costly as well..

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Child care facilities, dressing rooms, restrooms, giftwrapping stations, delayed billing, credit, installment payments, and etc. There must be labor available to help offer these services Very valuable store space occupied ..and other potential financial burdens
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Offering Assortment and Services Has a Cost..

What is the tradeoff? Where should a retailer position itself?

Costs, and consequently prices Assortment depth & services

Department stores vs. discount stores Migros vs. Bim

Limited variety and assortment (a lot of private labels), small stores with merchandise kept in cardboard cases, high turnover, and low prices
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Higher variety, bigger assortment, luxurious store design, big stores, high service, possibly parking, and high prices
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